Follow up of Regulating Gambling and Liquor

The Victorian Commission for Gambling and Liquor Regulation (VCGLR) is the independent statutory authority that regulates Victoria's gambling and liquor industries. In February 2017, the Victorian Auditor-General tabled the Regulating Gambling and Liquor audit report in the Victorian Parliament. The 2017 audit also included Victoria Police and the former Department of Justice and Regulation.

This follow-up audit focused on VCGLR only and assessed whether it has implemented the 13 recommendations made in the 2017 audit. Those recommendations covered four key areas, licensing processes, compliance, supervision of Crown Casino’s operations, and performance reporting.

Back to top

Independent assurance report to Parliament

Ordered to be published

VICTORIAN GOVERNMENT PRINTER November 2019

PP No 99, Session 2018–19

Back to top

Back to top

Previous audit

In February 2017, the Victorian Auditor-General tabled the Regulating Gambling and Liquor audit report in the Victorian Parliament. The objective of this follow up audit was to assess whether the Victorian Commission for Gambling and Liquor Regulation (VCGLR) has taken the action it said it would in response to the 13 recommendations we made to it in 2017. Victoria Police and the remaining recommendation for the Department of Justice and Community Safety (formerly the Department of Justice and Regulation) are not included.

During this follow up audit, VCGLR started investigating allegations of money laundering and other criminal activity at Crown Casino. VCGLR cannot take enforcement action in relation to suspected money laundering or receive information on money laundering activity from the Australian Transaction Reports and Analysis Centre (AUSTRAC). Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 VCGLR's role is to share any information its casino inspectors detect with responsible regulators and law enforcement agencies. VCGLR has an obligation under the Casino Control Act 1991 (CC Act) to ensure the management and operation of casinos remain free from criminal influence or exploitation. Its investigations are ongoing.

Conclusion

VCGLR has progressed all 13 recommendations directed to it in 2017. As a result, liquor licensing processes have improved, liquor regulation now has a more risk‑based model, guidance for staff and commissioners has improved, performance reporting better reflects intended outcomes and VCGLR has established a dedicated casino team.

However, further work is required to complete actions on most recommendations. This includes implementing risk-based models for gambling regulation, embedding the new performance reporting system and monitoring implementation of the quality assurance framework designed to improve compliance.

We have evidence that where VCGLR identified evidence or intelligence in relation to suspected criminal activity (such as money laundering) it has referred such material to law enforcement agencies such as AUSTRAC. VCGLR has also committed to share information on suspected or actual money laundering in Crown Casino within its regulatory remit, and to engage with other agencies to further clarify respective roles, responsibilities and any collaborative arrangements. We found that VCGLR could improve guidance for its staff on the CC Act, how to mitigate risk with their casino supervision and on the roles of agencies working on anti-money laundering.

Findings

Figure A shows VCGLR's progress on each recommendation. It uses the following indicators:

	Recommendation completed
	Recommendation in progress

Figure A
Status of recommendations

Source: VAGO.

Back to top

About 80 per cent of adult Victorians drink alcohol regularly and about 75 per cent gamble at least occasionally.

Gambling activities include:

• sports betting and wagering
• electronic gaming machines, of which there are around 30 000 in the state
• Keno and lotteries
• minor gaming such as bingo, lucky envelopes, and raffles
• Crown Casino.

The Victorian Government earned $1 826 million in taxation and licence fees from liquor and gambling activities in 2018–19. The alcohol and gambling industries employ over 130 000 people in Victoria and are important parts of our tourism industry.

Both the gambling and liquor industries have a high economic and social impact.

In 2018–19, player loss from gambling within the state of Victoria totalled around $5 869.6 million—of which around $2 698.7 million was lost on gaming machines, $1 679.1 million lost at Crown Casino, and $1 491.8 million lost on wagering and lotteries.

The misuse or abuse of gambling and alcohol can have serious negative impacts for individuals, their families and friends, and the wider community. These impacts include:

• street and domestic violence
• injuries and fatalities associated with vehicle accidents
• depression and other mental health issues
• theft and fraud to support gambling and alcohol addiction
• family neglect and child abuse
• loss of family assets and income
• medical conditions associated with alcoholism.

1.1 Role of the regulator

VCGLR is the independent statutory authority that regulates Victoria's gambling and liquor industries. It aims to uphold a culture of integrity and harm minimisation in the gambling and liquor industries through efficient and effective regulation, compliance monitoring and enforcement.

The key legislation under which VCGLR regulates is:

• Casino Control Act 1991
• Gambling Regulation Act 2003 (GR Act)
• Liquor Control Reform Act 1998 (LCR Act).

1.2 Why this audit is important

Each year, we ask agencies to attest to their progress in implementing actions to address previous performance audit recommendations that they accepted. Using these attestations, and our assessment of the public interest and materiality of audit topics, we select audits to follow up.

If VCGLR had not addressed the issues identified in the 2017 Regulating Gambling and Liquor audit, there would be potentially significant social and economic impacts for the industry and the public.

1.3 What this audit examined and how

In this follow up audit, we examined VCGLR's actions against our past recommendations. For each recommendation we:

• reviewed VCGLR's attestations of action against recommendations provided as part of our annual follow up survey
• assessed documentary evidence provided to demonstrate actions in response to recommendations
• interviewed relevant staff
• reviewed systems and undertook file reviews.

Unless otherwise indicated, any persons named in this report are not the subject of adverse comment or opinion.

We conducted the follow up audit in accordance with the Audit Act 1994 and ASAE 3500 Performance Engagements. We complied with the independence and other relevant ethical requirements related to assurance engagements. The cost of this audit was $168 000.

1.4 Report structure

The remainder of this report is structured as follows:

• Part 2 examines actions against recommendations related to licensing industry participants (recommendations 1 to 6).
• Part 3 examines actions against recommendations related to assuring compliance and casino supervision (recommendations 7 to 11).
• Part 4 examines actions against recommendations related to measuring performance and developing collaborative enforcement (recommendations 12 to 13).

1.5 Responses to recommendations

We have consulted with VCGLR and we considered their views when reaching our audit conclusions. As required by the Audit Act 1994, we gave a draft copy of this report to VCGLR and asked for its submissions or comments. We also provided a copy of the report to Department of Premier and Cabinet (DPC).

The full responses are included in Appendix A.

Back to top

In the 2017 audit, we found that VCGLR had made limited progress in reorganising the licensing division, training staff and providing improved guidance material to move towards a more risk-based approach to licensing activities.

VCGLR could not demonstrate that it properly examined and assessed all licensing applications in line with legislative provisions before approving them. Those weaknesses were more significant for liquor applications because VCGLR accepted applicants' information at face value. It relied heavily on both the honesty of applicants, and on Victoria Police and potential objectors to raise issues on the suitability of applicants, amenity issues or social harms associated with those applications.

In 2017, we identified instances where VCGLR granted licences without fully identifying and assessing the suitability of applicants and their associates, including cases where applicants had not provided complete information on their associates and past criminal convictions.

The 2017 audit recommended that VCGLR improve liquor licensing processes, adopt a risk-based model for licensing, undertake ongoing checks of liquor licensees, assess licence applications against all relevant legislative considerations, improve the transparency of net detriment decisions and conduct better reporting on licensing activities.

2.1 Liquor licensing process

VCGLR must assess and determine liquor licence applications in accordance with the LCR Act. VCGLR determined 16 227 liquor licence applications in 2018–19—a decrease of 207 from the previous year.

Recommendation 1

Progress

VCGLR has implemented the audit recommendation (Figure 2A).

Figure 2A
Progress implementing recommendation 1

Source: VAGO.

2.2 Ongoing checks of liquor licensees

Approximately 11 000 companies hold a liquor licence in Victoria. Section 103 of the LCR Act requires a licensee to inform VCGLR within 14 days, in writing, of changes to directors and associates.

Recommendation 2

Progress

While VCGLR has implemented a system to undertake checks of liquor licensees, the very small sample of checks it has made means it does not provide sufficient assurance of licensee compliance.

VCGLR now undertakes an annual monitoring program of liquor licence holders based on an annual random sample of licensees. Where it finds breaches, it refers them to the compliance team for further investigation and action.

However, Figure 2B shows that the marked decrease in the non-compliance rate reported by VCGLR was based on small samples that are not statistically valid. Without statistically significant sample sizes, it is not possible to determine if non-compliance has reduced.

Figure 2B
Annual monitoring program sample size

Source: VAGO, based on VCGLR's data.

Figure 2C summarises progress against recommendation 2 and further suggestions for improvement.

Figure 2C
Progress implementing recommendation 2

Source: VAGO.

2.3 Guidance on assessment of licence applications

VCGLR administers and makes decisions on 59 types of gambling and liquor licences. Most applications relate to a smaller number of high-volume licence types. Within VCGLR's licensing division, all licensing officers assess and make decisions on the high-volume licence types. Low-volume licence types are handled by licensing officers with specific experience and expertise. Clear guidance on licensing helps keep the application assessment process transparent and consistent with the intent of the GR Act.

Recommendation 3

Progress

As shown in Figure 2D, VCGLR is implementing the audit recommendation, but incomplete training data makes it difficult to ensure that training is completed by the right staff at the right time. Our review of application assessments found missing data, which prevents scrutiny of how officers made risk ratings or assessment decisions.

Figure 2D
VCGLR progress implementing recommendation 3

Source: VAGO.

2.4 Licensing risk‑based model

A risk-based approach helps VCGLR allocate its scarce resources to areas that have the greatest impact on limiting the negative impacts of gambling and alcohol. It also provides VCGLR with a transparent, defensible approach to its regulatory work.

Recommendation 4

Progress

VCGLR is implementing its licensing risk-based model in two parts—liquor and gambling (Figure 2E).

VCGLR implemented the liquor licensing risk-based model in July 2018 and risk-based framework for gambling suitability in July 2019. Implementation of the remaining components of the gambling model covering gaming machine types and game applications is due for completion by 30 June 2020.

The completion dates are different due to availability of liquor data compared with the gambling data needed for the risk-based approach. For liquor licences, VCGLR used existing datasets in the model to calculate the risk rating. For gambling licences, VCGLR is considering risk factors such as social impact and looking to source relevant data to input into its risk-based model. It is reasonable for VCGLR to take longer to implement the gambling model.

VCGLR expanded the risk factors in the liquor licensing risk-based model from two to five—trading hours, patron capacity, licence category, venue compliance history and suitability. VCGLR draws data on four of the five risk factors from independent sources. The risk rating methodology aligns with the international standards for risk management and better practice.

Figure 2E
VCGLR progress implementing recommendation 4

Source: VAGO.

2.5 Assessing electronic gaming machines

The 'no net detriment' test assesses the positive and negative social and economic impacts associated with a venue having electronic gaming machines. A venue is determined to have no net detriment if the positive impacts outweigh the negative. Applying the test on electronic gaming machine licence applications is intended to make sure the net impact of additional or relocated machines on the community is not negative.

The GR Act does not provide guidance on how VCGLR should apply the no net detriment test. Commissioners conduct the test, and it is not delegated to VCGLR staff members. VCGLR publishes the results of no net detriment tests on its website.

Recommendation 5

Progress

VCGLR has developed detailed guidance for assessing net detriment. The guidance provides commissioners with a list of factors relevant to the no net detriment test. Commissioners select factors that are relevant to the individual application. Our review of no net detriment tests conducted in 2018 and 2019 found assessments used between 11 and 15 factors.

Commissioners determine the relative importance (weight) of each factor when assessing an individual application. They use a five-point scale to describe the relative importance—nil, marginal, low, moderate and considerable. Commissioners may also use incremental descriptors, such as 'low to moderate'.

Once factors and weightings are established, commissioners then assess the net effect of the economic and social factors on the wellbeing of the community. VCGLR concludes on the application's impact on the wellbeing of the relevant community by determining a net weighting (net weighting = [positive economic – negative economic] + [positive social – negative social]). If the net weighting is neutral or positive, then the application passes the no net detriment test.

VCGLR has implemented this recommendation, as summarised in Figure 2F. However, it could improve the methodology to determine net detriment to provide greater clarity on decisions.

Figure 2F
VCGLR progress implementing recommendation 5

Source: VAGO.

2.6 Reporting on licensing activities

Management reports that include timely, relevant data help senior staff to monitor trends and make informed decisions.

Recommendation 6

Progress

VCGLR has made progress in implementing this recommendation (Figure 2G). VCGLR recently implemented a new reporting system that extracts data from five core VCGLR ICT systems into a data cube. Staff manually add other datasets, such as proof of age data. A business intelligence tool creates a range of internal and external reports, including reports on BP3 measures. Interactive dashboards provide VCGLR's management and executive with real-time access and ability to customise their reports by applying various filters. Once embedded, the system should significantly improve management reporting capabilities.

Figure 2G
VCGLR progress implementing recommendation 6

Source: VAGO.

Back to top

The 2017 audit found that VCGLR was not adequately monitoring compliance with gambling and liquor legislation.

Compliance activities were not sufficiently risk-based and failed to target inspections to areas of high risk or high potential for harm.

These issues arose due to longstanding, systemic weaknesses in the design and operation of VCGLR's compliance activities. Key issues included:

• inflexible allocation of resources to compliance activities based on factors other than risk
• a management approach and culture focused on meeting quotas, which encouraged superficial inspection activities rather than activities to address harms
• inadequate guidance and training for inspectors
• unreliable data about liquor and gambling inspections.

VCGLR identified and started to address many of these issues in late 2015. However, its actions were not yet sufficiently developed for the 2017 audit to assess if they would improve the effectiveness of VCGLR's compliance.

The 2017 audit made recommendations on improving VCGLR compliance arrangements related to data integrity checks, risk-based approaches to compliance, quality assurance and training for compliance inspectors.

3.1 Data integrity checks

Data integrity is critical when that data is relied on for reporting and decision‑making.

Recommendation 7

Progress

VCGLR has undertaken action to improve data integrity, including implementation of a new reporting system (Figure 3A).

Within the its compliance division, a strategic intelligence unit supports VCGLR's data integrity work. The unit provides VCGLR and commissioners with data and intelligence on activity in the gaming and liquor industries, and the effect of regulatory policies and practices. The unit has a lead role in resolving data integrity issues that impact the new reporting system.

Figure 3A
VCGLR progress implementing recommendation 7

Source: VAGO.

3.2 Compliance risk-based approach

A risk-based approach helps VCGLR to allocate its finite resources to areas that have the greatest impact on limiting the negative effects of gambling and alcohol. It also provides VCGLR with a transparent, defensible approach to its regulatory work.

Recommendation 8

Progress

VCGLR's risk-based approach to compliance involves collection and analysis of data from a range of internal and external sources. External sources include:

• Emergency Services Telecommunications Authority
• VicRoads
• Victorian Responsible Gambling Foundation
• local councils
• interstate counterparts
• open sources.

VCGLR uses this information to build an understanding of the nature and scope of alcohol and gambling-related harm. The intelligence team consolidates and analyses collected information and inputs the results into the compliance division's operational and strategic planning processes.

VCGLR's progress implementing the 2017 audit recommendation is summarised in Figure 3B. As previously noted, while VCGLR has implemented this recommendation in relation to liquor licence compliance, it is still implementing it in relation to gambling.

Figure 3B
VCGLR progress implementing recommendation 8

Source: VAGO.

3.3 Compliance quality assurance framework

Implementation of a quality assurance framework is critical to ensuring the effectiveness of VCGLR's compliance work.

Recommendation 9

Progress

VCGLR has made progress in implementing this recommendation (Figure 3C). VCGLR's current management accountability framework for compliance details the standards regarding the operational and administrative duties undertaken within the compliance division. Specifically, the framework:

• sets the expectation that all staff conform with compliance division standards
• defines roles and responsibilities for compliance division staff members, including compliance inspectors
• details compliance activities and the standards required when performing these activities. SOPs specify how to undertake each type of compliance work activity and their proposed frequencies
• lists the scope of formal training and feedback to be provided to staff members
• identifies two types of periodic quality checks on compliance division work—internal audits and quality assurance checks.

Figure 3C
VCGLR progress implementing recommendation 9

Source: VAGO.

3.4 Training of compliance inspectors

Training is a key tool for building workforce capability. Monitoring staff participation in training provides assurance that staff across the organisation develop and maintain capabilities to perform their duties.

Recommendation 10

Progress

VCGLR has implemented this recommendation (Figure 3D). Within the compliance division, team leaders manage training for compliance inspectors. An inspector training program covers the core functions and activities of compliance inspectors. Supplementary training, including on specialist and low-volume compliance work, is provided on a topic-by-topic basis. The rationale for this is that team leaders will best understand the needs of their team members, and it is not cost-effective to train all staff in specialist and low-volume compliance work.

VCGLR has a whole-of-agency learning management system for managing the learning and development needs of its staff members, including recording attendance at training courses and other capability building activities.

Figure 3D
VCGLR progress implementing recommendation 10

Source: VAGO.

3.5 Supervision of casino operations

Crown Casino is the only licensed casino in Victoria. It holds 14 liquor licences and is the only venue in Victoria that provides gambling and alcohol 24 hours a day.

The 2017 audit found that VCGLR acted to address the lack of a coherent organisation-wide approach to casino supervision across its licensing and compliance functions. However, its compliance division had not applied a level of focus on the casino that reflected its status and risk as the largest gaming venue in the state, and its approach lacked continuity.

Recommendation 11

Progress

In April 2017, VCGLR established a dedicated team to monitor activities at Crown Casino and areas in its vicinity. The dedicated casino team has progressed implementation of planned actions to improve supervision of casino operations.

Dedicated casino team

The dedicated casino team comprises one manager, one team leader and 12 inspectors. The team is located at the Crown Casino and provides 24‑hour, seven-days-a-week monitoring of the casino's operations.

The dedicated casino team is supported by other VCGLR teams and co‑regulators such as Victoria Police and AUSTRAC. For example, other VCGLR teams monitor the ICT systems that underpin electronic gaming. VCGLR has memorandums of understanding (MoU) with both Victoria Police and AUSTRAC. These MoUs detail their respective roles and responsibilities, and the mechanisms to share intelligence.

In response to the 2017 audit recommendation, VCGLR reviewed its regulatory approach to Crown Casino. The review identified criteria for a risk-based approach to its regulatory work. Priorities and allocation of resources are now operationalised in an annual audit schedule that lists the types, number and frequency of audits conducted by the dedicated casino team.

Work with co-regulators to clarify roles and responsibilities

VCGLR is responsible for regulating and monitoring Crown Casino under the provisions of the CC Act. One of the principal aims of the CC Act is to ensure that the management and operations of Crown Casino remain free from criminal influence or exploitation, and that gaming in casinos is conducted honestly.

Crown Casino is also regulated by a wide range of state and federal regulators and law enforcement agencies that are responsible for many other areas of its operations. The 2017 audit noted that VCGLR should work with co‑regulators to clarify roles and responsibilities.

VCGLR's key co-regulators are AUSTRAC in relation to money laundering activities and Victoria Police in relation to criminal matters.

AUSTRAC is a federal agency that uses financial intelligence and regulation to disrupt money laundering, terrorism financing and other serious crime under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

VCGLR cannot take enforcement action in relation to suspected money laundering but refers such matters to relevant authorities such as AUSTRAC. In March 2018, VCGLR entered into a MoU with AUSTRAC. The MoU aims to facilitate a cooperative framework within which the parties work together to perform their respective functions, including facilitating VCGLR's access to and use of AUSTRAC's information in a tightly controlled manner. VCGLR advises that it regularly engaged with AUSTRAC during the 2018–19 financial year.

VCGLR updated its audit program in early 2019 to better align with its regulatory role and responsibilities. Where VCGLR identifies evidence or intelligence in relation to suspected criminal activity (such as money laundering) from any of its audits, or from other sources (such as complaints or the observations of inspectors at the casino), it refers this material to law enforcement agencies such as AUSTRAC. We reviewed evidence that VCGLR passed on information about suspicious activity to law enforcement agencies.

During this follow up audit, a number of agencies started investigating Crown Casino in relation to allegations of money laundering, crime and corruption. VCGLR advises that it will continue to engage with law enforcement agencies and other regulators to further clarify respective roles and responsibilities and any collaborative arrangements.

As the regulator that ensures the management and operation of the casino remains free from criminal influence, it is critical for VCGLR to continually provide training to its operational staff regarding the respective roles and responsibilities of all relevant regulators and law enforcement agencies and monitor that its staff have acted in accordance with their obligations in practice.

Figure 3E summarises VCGLR's progress in implementing the 2017 audit recommendation. The established dedicated casino team has implemented various actions to improve the supervision of casino operations. Work continues to improve its effectiveness and maturity.

Figure 3E
VCGLR progress implementing recommendation 11

Source: VAGO.

Back to top

The 2017 audit found that VCGLR's publicly reported performance information provided limited insight into its effectiveness in meeting legislative objectives relating to harm minimisation. VCGLR largely measured and publicly reported on activity rather than its effectiveness or impact. Its annual report included only limited information on actions relating to its effectiveness. VCGLR's prior emphasis on counting activities, such as the number of compliance inspections, encouraged operational behaviour that focused on matters with little relevance to, or impact on, harm minimisation.

4.1 Publicly reported performance information

Publicly reported performance measures are a transparent way to show how well an organisation meets its obligations.

Recommendation 12

Progress

VCGLR has implemented this recommendation (Figure 4A).

Since the 2017 audit, VCGLR and the Department of Justice and Community Safety have reviewed and improved the quality of VCGLR's BP3 performance measures.

For example, VCGLR introduced a new performance measure from 2016–17 on the number of operations with co-regulators to identify licensees supplying alcohol to minors or people who are intoxicated. This measure aims to provide information on compliance actions that focus on harm minimisation.

Figure 4A
VCGLR progress implementing recommendation 12

Source: VAGO.

4.2 Collaborative enforcement strategy

Both VCGLR and Victoria Police are responsible for supervising licensed venues. While VCGLR is the primary regulatory body, Victoria Police also has powers to enforce liquor and gambling legislation. The 2017 audit found that while there was clear evidence of collaboration between VCGLR and Victoria Police, including regular communication on enforcement issues, joint operations and other liquor licensing issues that may arise, the agencies had not developed and formally adopted a joint enforcement strategy for alcohol-related compliance activities.

Recommendation 13

Progress

VCGLR has implemented this recommendation (Figure 4B).

Figure 4B
VCGLR progress implementing recommendation 13

Source: VAGO.

Back to top

We have consulted with VCGLR, and we considered its views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to VCGLR and asked for its submission and comments. We also provided a copy of the report to the DPC.

Responsibility for the accuracy, fairness and balance of those comments rests solely with the agency head.

Response was received as follows:

• VCGLR

RESPONSE provided by Chairman, VCGLR

Back to top